The competitive scenery of the global economic activity needs the productivity-driven banking industry to be paying special attention for its relative level of efficacy compared to its competitors. The study presents technical efficiency , pure technical efficiency and scale efficiency of the selected eighteen commercial banks in Nepal using input-oriented data envelopment analysis for the period 2005-2010. The mean technical inefficiency of the commercial banks was 16.0% while the average pure technical and scale inefficiencies were 11.16 and 5.50%, respectively. The tobit model to estimate the impact of risk management factors indicates that the capital risk (CAR), Liquidity risk (CDR), profitable ratios (ROA and ROE) have influenced the efficiencies, however, credit risk (NPL) reduced the levels of the commercial banks efficiency. Commercial bank size had consistently inverse impact on technical, pure technical and scale efficiencies. It can be concluded that the Nepalese commercial banks inefficiency was attributed to pure technical inefficiency rather than scale inefficiency, ensuring the commercial banks were performing at their best levels of operations. Furthermore, the joint venture and domestic private banks were more efficient than public sector banks, which suffered managerial underperformance and choice of inappropriate scale size.
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